PM Daily Market Commentary – 1/9/2017

PM Daily Market Commentary – 1/9/2017

Gold fell -7.60 [-0.58%] to 1313.60 on moderately heavy volume, while silver dropped -0.16 [-0.96%] to 17.00 on heavy volume. The buck moved higher, but it rose only +0.17%, so this move didn’t account for the drop in PM.

Gold fell steadily during Asia and London trading, bouncing at the US open, but then fading a bit into the close. The opening black marubozu candle was a bearish continuation, and the gold forecaster fell -0.38 to -0.39. That’s a downtrend. While gold has yet to print a swing high, and it remains above its 9 MA, yesterday’s sell signal is looking more accurate as time passes.

Silver dropped steadily for much of the day, making a new low to 16.94 not long after the US open. The bounce back was a bit anemic, and silver faded into the close. Silver printed an opening black marubozu, like gold, which was a bearish continuation. Silver forecaster dropped -0.07 to -0.23. Silver also printed a 4-candle swing high, and dropped below its 9 MA. Those are all signs of a trend change, although the forecasted slope of the downtrend isn’t that steep at the moment. Silver’s fall stopped right at the 200 MA.

COMEX SI open interest rose +1,273 contracts today.

The gold/silver ratio rose +0.30 to 77.27. That’s bearish.

The miners gapped down at the open; the senior miners bounced back, while the junior miners tried to rally but the rally faded as the day wore on. GDX fell -1.32% on heavy volume while GDXJ dropped -2.00% on moderately heavy volume. XAU forecaster fell -0.11 to -0.36, dropping deeper into a downtrend. Miners are selling off at this point – but notice the drops are still in the 1-2% range. Back during the bad old days of 2013-2015, miners would be off 5-6% on days like today. I think that’s an important change in behavior – and speaks towards a longer-term bullish attitude towards the PM sector overall.

Today, the GDXJ:GDX ratio fell, as did the GDX:$GOLD ratio. That’s bearish.

Platinum fell -0.64%, palladium rose +0.03%, and copper dropped -0.28%. Platinum printed a swing high (45% bearish reversal), but it remains in an uptrend according to the forecaster (down -0.17 to +0.17). Copper and palladium both remain in uptrends too. The forecasters take inputs from lots of different places; why is copper forecaster bullish even with 6 of 7 days trading lower? Copper forecaster even rose today, up +0.10 to +0.19. I don’t know why that is. The models are too complicated. Copper’s model, for instance, relies on inputs from 5 other commodities, changes in interest rates, a couple of currencies, and 6 different ratios (i.e. gold/copper, SPX/copper, etc). But when they are all in uptrends, even after the charts look like a trend change has already happened, that suggests strength to me in the overall complex.

The buck moved up +0.16 [+0.17%] to 92.21. The long white candle was a bullish continuation, and the forecaster moved up +0.11 to -0.07. That’s pretty close to a buy signal for the buck, which moved back above its 9 MA just today. Notice how the bearish reversal in PM appears to be aligned with the bullish reversal in the dollar.

Crude shot up +1.54 [+2.49%] to 63.43, breaking out to a new high. The API report after market close was bullish: crude -11.1m, gasoline +4.3m, distillates +4.7m. The crude forecaster jumped +0.38 to +0.58, which is a strong uptrend. What is driving prices? The extreme cold in the US drives heating oil (distillates) consumption, while concerns about Trump renewing sanctions on Iran along with Venezuela’s economic collapse are “geopolitical lottery tickets” which are probably supporting prices also. https://oilprice.com/Energy/Oil-Prices/Is-An-Oil-Price-Correction-Overdue.html

SPX rose 3.58 [+0.13%] to 2751.29, another all time high. SPX printed a northern doji candle, which had a 43% chance of marking the top. A large number of candles, when RSI is this high (daily=86, weekly=91) will give off reversal readings like this. Forecaster fell -0.21 to +0.77. That’s still a strong uptrend. Sector map shows sickcare did best (XLV:+1.18%) along with financials (XLF:+0.78%) while utilities trailed (XLU:-0.98%). I’m not sure yesterday’s swing low in XLU will hold.

VIX rose +0.56 to 10.08.

TLT fell -1.34%, making a new low. TY was also hit hard, falling -0.41%, dropping through support, and looking very bearish. Forecaster fell -0.24 to -0.64, which is a strong downtrend. The 10-year (TY) is coming up on an important support level: in yield terms, that’s 2.60%. Various commentators have opined that a break above 2.60% would be the indicator that the 30 year bond bull market was over. Current 10-year treasury yield is 2.55%, and it rose 0.07% just today. So that’s not far away at all. In the monthly chart below, you can see the 2.6% yield line.

If this level cracks, and traders panic out, it would be a very big deal. The bond market is immense, and the US 10-year treasury (TY) is the benchmark for yield around the world. An old trader expression: “Equities are for show, bonds are for dough.” A big drop in the bond market would have the equivalent economic impact of the Fed raising rates – by surprise.

JNK fell -0.24%, printing a swing high which had a 59% chance of marking the top. JNK’s forecaster dropped -0.46 to -0.05, which is a sell signal for JNK. It appears that if the great bond bull market is over, JNK will get nailed along with all the other bonds.

CRB rose +0.64%; 3 of 5 sectors rose, led by energy. Just eyeballing the charts, industrial metals, PM, agriculture, and livestock are all correcting a bit at this point. Its not clear how serious a correction this will be.

The buck continues moving slowly higher, and the pace of the selling in the bond market is increasing. We had a relatively important break of support in bonds today on the daily chart which could lead – maybe even this week – to a breakout above the 2.60% yield for the 10-year treasury. Why do we care? Well, with the 260 trillion in debt worldwide, falling bond prices means rising rates – which hits everyone’s bottom line directly. What’s more, the size of the debt overhang acts as a multiplier for each basis point of rate increase.

The fundamentals are pretty bearish for bonds right now: the Fed is seriously starting to roll off its balance sheet, the US government is looking to borrow more in order to fund tax cuts, while the payrolls report is showing slowly increasing signs of wage inflation. Increasing bond supply, dropping bond demand, rising inflation → sell bonds.

What does this mean for gold? I think it will be lifted higher along with commodity prices. If we assume commodities are entering a new bull market, then gold and silver should follow along, as they did back in 2003-2008. That’s the theory anyway. And all that bond money will have to go somewhere. Equities, at all time highs? Or commodities? My bet is commodities.

This suggests that the corrections we see will (probably) be buying opportunities. If we start seeing 5-6% daily drops in the miners I’ll re-assess, but until then…I think we’re in a buy-the-dips mode for PM.

That’s not to say buy today; I think this correction probably has further to go.

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